Healthcare Organizations

Healthcare Organizations

Mary E. Mancini



Organizations are collections of individuals brought together in a defined environment to achieve a set of predetermined objectives. Economic, social, and demographic factors affect the purpose and structuring of the system, which in turn interact with the mission, philosophy, and structure of healthcare organizations.

Healthcare organizations provide two general types of services: illness care (restorative) and wellness care (preventive). Illness care services help the sick and injured. Wellness care services promote better health as well as illness and accident prevention. In the past, most organizations (e.g., hospitals, clinics, public health departments, community-based organizations, and physicians’ offices) focused their attention on illness services. Recent economic, social, and demographic changes have placed emphasis on the development of organizations that focus on the full spectrum of health, especially wellness and prevention, to meet consumers’ needs in more effective ways. Emphasis is being placed on the role of the nurse as both a designer of these restructured organizations and a healthcare leader and manager within the organizations. For example, the manner in which chronic and acute illnesses are managed is dramatically different from such a decade ago. Nurses take a much more active and independent role in providing these services. Similarly, as population numbers increase and the demand for nurses exceeds the supply, we can anticipate more changes in how nurses function within the healthcare system. An increased focus on continuous performance improvement and benchmarking demands that organizations constantly consider their own practices and make appropriate changes, including those related to the organization’s culture and the role of nurses within the organization.

Nurses practice in many different types of healthcare organizations. Nursing roles develop in response to the same social, cultural, economic, legislative, and demographic factors that shape the organizations in which they work. As the largest group of healthcare professionals providing direct and indirect care services to consumers, nurses have an obligation to be involved in the development of health care, social, and economic policies that shape healthcare organizations.

Characteristics and Types of Organizations

Responding to the rapidly changing nature of the economic, social, and demographic environment at the national, state, and local level, the United States healthcare system is in a continual state of flux as are the organizations within this system. Organizations either anticipate or respond to these environmental changes.

Institutional Providers

Acute care hospitals, long-term care facilities, and rehabilitation facilities have traditionally been classified as institutional providers. Major characteristics that differentiate institutional providers as well as other healthcare organizations are (1) types of services provided, (2) length of direct care services provided, (3) ownership, (4) teaching status, and (5) accreditation status.

Length of Direct Care Services Provided

Another characteristic that is used to differentiate healthcare organizations is the duration of the care provided. According to the American Hospital Association (AHA) (2009), most hospitals are acute care facilities giving short-term, episodic care. The AHA defined an acute care hospital as a facility in which the average length of stay is less than 30 days. Chronic care or long-term facilities provide services for patients who require care for extended periods in excess of 30 days. In acute care institutions, patients are discharged as soon as their conditions are stabilized. An example of a long-term care facility is a geriatric organization that provides care services from onset of impairment until death. Many institutions have components of both short-term and long-term services. They may provide acute care, home care, hospice care, ambulatory clinic care, day surgery, and an increasing number of other services, such as day care for dependent children and adults or focused services such as Meals-on-Wheels. The term healthcare network refers to interconnected units that either are owned by the institution or have cooperative agreements with other institutions to provide a full spectrum of wellness and illness services. The spectrum of care services provided are typically described as primary care (first-access care), secondary care (disease-restorative care), and tertiary care (rehabilitative or long-term care). Table 7-1 describes the continuum of care and the units of healthcare organizations that provide services in the three phases of the continuum.


Ownership is another characteristic used to classify healthcare organizations. Ownership establishes the organization’s legal, business, and mission-related imperative. Healthcare organizations have three basic ownership forms: public, private non-profit, and for-profit. Public institutions provide health services to individuals under the support and/or direction of local, state, or federal government. These organizations must answer directly to the sponsoring government agency or boards and are indirectly responsible to elected officials and taxpayers who support them. Examples of these service recipients at the federal level are veterans, members of the military, Native Americans and prisoner healthcare organizations. State-supported organizations may be health service teaching facilities, chronic care facilities, and prisoner facilities. Locally supported facilities include county-supported and city-supported facilities. Table 7-2 shows how several common healthcare organizations are classified.

Private non-profit (or not-for-profit) organizations—often referred to as voluntary agencies—are controlled by voluntary boards or trustees and provide care to a mix of paying and charity patients. In these organizations, excess revenue over expenses is redirected into the organization for maintenance and growth rather than returned as dividends to stockholders. These organizations are required to serve people regardless of their ability to pay. Non-profit organizations located in impoverished urban and rural areas are often economically disadvantaged by the amount of uncompensated care that they provide. In 2007, roughly 60% of uncompensated care in the United States was provided by 14% of hospitals (United States Department of the Treasury, 2009). Some states, such as New York, have created charity pools to which all non-profit organizations in the state are required to contribute to offset financial problems of the disadvantaged institutions. Historically, non-profit organizations have been exempt from paying taxes as they commit to providing an important community service. The owners of such organizations include churches, communities, industries, and special interest groups such as the Shriners. It is important for nurses to understand the impact of ownership on how organizations are structured, the services they provide, and the patients they serve.

For-profit organizations are also referred to as proprietary or investor-owned organizations. These organizations operate with the specific intent of earning a profit by providing healthcare services to individuals who can afford to pay for these services. Organizations such as private or public insurers who provide healthcare insurance coverage are known as third-party payers. Owners may be individuals, partnerships, corporations, or multisystems. Many for-profit organizations, like the not-for-profit ones, receive supplementary funds through private and public sources to provide special services and research. This funding allows them to provide financial assistance to patients who can afford ordinary care but are not in a position to finance catastrophic occurrences such as vital organ failure, birth of premature or sick infants, or transplant operations.

Multihospital systems, which are defined as two or more institutional providers having common owners, represent a significant development that has taken place in the past two decades. Investor-owned, multihospital systems are becoming increasingly popular. Nursing homes, home care, psychiatric services, and health maintenance organizations (HMOs) are commonly units in such systems.

Research has shown that ownership can impact efficiency and quality. Although hospital ownership is defined legally, there are significant differences within the three sectors related to teaching status, location, bed size, and corporate affiliation. For-profit hospitals, which represent approximately 15% of the beds in short-term acute care hospitals, are typically nonteaching, suburban facilities with small to medium bed capacity and have the ability to access group purchasing cooperatives that lower non-salary expenses. For-profit hospitals tend to have higher hospital charges and lower wage and salary costs that most likely represent an aggressive approach to maximizing return on investment.

Ownership results in differential treatment relative to regulatory requirements. Public and non-profit hospitals are tax exempt and have a concomitant responsibility to provide mandated community service such as delivering care to the poor and indigent. Thus one can expect operational differences between and among the three ownership sectors. Ownership impacts the organization’s level of effort in regard to the provision of uncompensated care. Those organizations with taxing authority or direct support from local or state government have a clear mandate to care for indigent patients and receive at least some level of dedicated funds to do so. For-profit hospitals offer fewer unprofitable services and actively seek to avoid providing uncompensated care and are required to pay taxes that can have an impact on their bottom line. To keep their non-profit status, these facilities must make a good-faith effort to provide community service and charity care. Unfortunately, the literature provides conflicting and inconclusive evidence in regard to the impact of ownership on hospital financial performance.

Teaching Status

Teaching status is a characteristic that can differentiate healthcare organizations. The term teaching institution is applied to academic health centers (those directly affiliated with a school of medicine and at least one other health profession school) and affiliated teaching hospitals (those that provide only the clinical portion of a medical school teaching program). Studies have shown that although care is usually more costly at teaching hospitals than at non-teaching hospitals (estimates range from 12% more expensive in Canada to 27% in the United States), teaching hospitals generally offer better care because of their access to state-of-the-art technology and researchers. The higher costs of teaching hospitals have been attributed to the unique missions these institutions tend to pursue, including graduate medical education, biomedical research, and the maintenance of stand-by capacity for highly specialized patient care (Flatt & Rahal, 2006).

Traditionally, teaching hospitals have received government reimbursement to cover these additional costs. There are, however, intrinsic costs of providing a medical training program that are not fully reimbursed by the government. Maintaining a teaching program places a financial burden on hospitals relative to the direct cost of the program and the indirect cost of the inefficiencies surrounding the training process. These inefficiencies include (1) salaries of physicians who supervise students’ care delivery and participate in educational programs such as teaching rounds and seminars; (2) duplicated tests or procedures; and (3) delays in processing patients related to the teaching process. Currently, these expenses are reimbursed based on a formula that considers the cost of caring for the low-income and uninsured patients who populate most academic teaching programs. This reimbursement is being revised as states reduce subsidies for the education of physicians. Hospitals make strategic decisions about their level of participation in physician training. Because of the additional costs, few for-profit hospitals sponsor teaching programs. Teaching hospitals are usually located close to their affiliated medical school. They tend to be larger and located in more urban and economically depressed inner-city areas than their non-teaching counterparts. Teaching hospitals, therefore, tend to exhibit weaker economic performance compared with non-teaching hospitals.

Accreditation Status

Whether or not a healthcare organization has been accredited by an external body as having the structure and process necessary to provide high quality care is another characteristic that can be used to distinguish one organization from another. Private organizations play significant roles in establishing standards and ensuring care delivery compliance with standards by accrediting healthcare organizations. Examples of these organizations are The Joint Commission and The National Committee for Quality Assurance (NCQA). The Joint Commission provides accreditation programs for ambulatory care, behavioral health care, acute care and critical access hospitals, laboratory services, long-term care, and hospital-based surgery. The NCQA is a non-profit organization that accredits, certifies, and recognizes a wide variety of healthcare organizations, services, and providers. More information on accrediting organizations is provided in the “Accrediting Bodies” section on pp. 125-126.

Consolidated Systems and Networks

Healthcare organizations are being organized into consolidated systems through both the formation of for-profit or not-for-profit multihospital systems and the development of networks of independently owned and operated healthcare organizations.

Consolidated Systems

Consolidated systems tend to be organized along five levels. The first level includes the large national hospital companies, most of which are investor owned. The second level involves large voluntary affiliated systems, which provide members with access to capital, political power, management expertise, joint venture opportunities, and links to health insurance services or, as in Canada, to a national healthcare coverage program. The third level involves regional hospital systems that cover a defined geographic area, such as an area of a state. The fourth level involves metropolitan-based systems. The fifth level is composed of the special interest groups that own and operate units organized along religious lines, teaching interests, or related special interests that drive their activities. This level often crosses over the regional, metropolitan, and national levels already described. Through the creation of multiunit systems, an organization has greater marketing, policy, and contracting potentials.

Ambulatory-Based Organizations

Many health services are provided on an ambulatory basis. The organizational setting for much of this care has been the group practice or private physician’s office. Prepaid group practice plans, referred to as managed care systems, combine care delivery with financing and provide comprehensive services for a fixed prepaid fee. A goal of these services is to reduce the cost of expensive acute hospital care by focusing on out-of-hospital preventive care and illness follow-up care. Group practice plans take various forms. One form has a centralized administration that directs and pays salaries for physician practice (e.g., HMOs).

The HMO is a configuration of healthcare agencies that provide basic and supplemental health maintenance and treatment services to voluntary enrollees who prepay a fixed periodic fee without regard to the amount of services used. To be federally qualified, an HMO company must offer inpatient and outpatient services, treatment and referral for drug and alcohol problems, laboratory and radiology services, preventive dental services for children younger than 12 years, and preventive healthcare services in addition to physician services.

Independent practice associations (IPAs) (or professional associations [PAs]) are a form of group practice in which physicians in private offices are paid on a fee-for-service basis by a prepaid plan to deliver care to enrolled members. Preferred provider organizations (PPOs) operate similarly to IPAs; contracts are developed with private practice physicians, but fees are discounted from their usual and customary charges. In return, physicians are guaranteed prompt payment.

Nurse practitioners’ leadership in managing patients in group practices has contributed greatly to their success. Examples of this can be found by reviewing literature related to nurses’ activities at Kaiser Permanente HMO, the Harvard Community Health Plan, and Minute Clinics.

There is increasing evidence that nurse-run clinics as well as ambulatory care centers can succeed whether they are integrated within a larger medical complex or physically and administratively separate organizations. Examples of freestanding organizations include surgicenters, urgent care centers, primary care centers, and imaging centers. Benefits and risks are associated with geographic and administrative separation between organizations. For example, when an ambulatory surgery center is located separate from an acute care facility, there is a need to address emergency response teams and seamless transfer of patients in need of a higher level of care. On the other hand, having the ambulatory surgery center apart from the acute care hospital typically provides the opportunity for more patient-focused amenities such as parking and family waiting. It is often the nurse manager in these facilities who is charged with identifying the strategies to maximize the benefits and minimize the risks or challenges inherent in the characteristics of the facility and organization.

Other Organizations

Although hospitals, nursing homes, health departments, visiting nurse services, and private physicians’ offices have made up the traditional primary service delivery organizations, it is important to recognize the critical role being played by other organizations that may be freestanding or units of hospitals or other community organizations. These include community service organizations, subacute facilities, and a proliferating number of home health agencies, long-term care facilities, and hospices. In addition, nurse-owned/nurse-organized services and self-help voluntary organizations contribute to the overall service provision. Growth in these organizations was spurred by the implementation of the prospective payment system, which resulted in early discharge of many patients from acute care facilities. These patients require highly technical continuing nursing care to maintain a stable status. The focus of these organizations is on the care of individuals and their family and significant others rather than on the community as a whole. Many of these organizations are functioning as PPOs, and this is expected to be a continuing pattern in the future.

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Aug 7, 2016 | Posted by in NURSING | Comments Off on Healthcare Organizations

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